Friday, February 24, 2012

Tax Season

I officially am finished with my taxes!!! This year was quite confusing because I moved states and was technically still attached to my home state; therefore, I had to file federal, and THREE! states. Oh bother. Two of the states would not let me e-file for free because I was a part-time resident. I was worried sick I would have issues, but it looks like I can wipe my hands of tax worries and woes.

I did want to share with you my tax season tips:
-Don't spend money on preparing your taxes unless you need to.
You may say that your deductions are complicated or you have all sorts of special filing requirements. But most of those deductions and credits are available to you without hassle and without having to pay a cent! The government requires companies to offer individuals who have either:

Made less than $31,000, Were on active military duty, OR Qualified for the Earned Income Credit (EIC).

If you answered yes to any one of the questions you are eligible to have your taxes prepared for you online for FREE, file online for FREE, and you may also qualify for free state filing (states included in the free e-filing are: AL, AR, AZ, GA, IA, ID, IN, KY, MI, MN, MO, MS, NC, NY, OK, OR, RI, SC, VA, VT, WV.
You can pick whichever preparer you like the best through the government's Free File website. My personal favorite is Turbotax. They are simple and really dumb down taxes for a dummy like me.

IMPORTANT: For any of the approved Free File company's, you must first access the IRS Free File website and link to the company through that page. If you directly go to the company's website, you will not be offered free filing (or the best deals possible, for example turbo tax may have a free e-file on main website, but state filing is $30 per state, whereas on Free file Turbotax website the 22 free states are free and other states are $15).

Even if your state is not listed on that free state listing, many states have free state websites specifically for free e-filing. IL has its own e-filing website that you can use to file your taxes for free, for example. These sites have restrictions that you will have to take a look at. This website has a link to each state's e-file website where you can see if you qualify for free filing (http://www.taxhead.com/?page=states).

-Plan ahead what you are using your refund on!
With direct deposit, I already received 3 out 4 of my refunds. It would have been very easy to spend it on clothes or make-up, but I had plans to pay off a clothing store credit card. The minute the funds were available from the refunds I went to the CC website and initiated payments.

-First time undergraduate students, do not forget your FREE MONEY!!
Okay, not technically free. But if you are in the first four years of your first undergraduate degree program and studying at least half-time at an accredited university you are eligible for a partially REFUNDABLE tax credit, the American Opportunity Credit. If your parents claim you as a dependent, it is your parents who must apply for this credit on their taxes.

The credit is worth up to $2,500 on the first $4,000 of qualifying education expensives (tuition, course materials, books, etc). The credit is reduced is gradually reduced for incomes greater than $80,000-$90,000 (or $160,000-$180,000 for joint filers). The credit is not available if you are above this range.

Whereas most credits are non-refundable and can only be used for tax amounts owed, this credit refundable. Up to 40% of the credit is refundable, meaning that you will be getting 40% of the credit as an automatic refund.

You are eligible for this credit for ALL 4 years. So in total you can get up to $4,000 in refunds from this credit alone.

All you need to do is obtain your 1098-T form that is generated by your university. Normally this is either mailed to you, emailed, or accessed through your school's info website. Then while you are filling out your taxes using TurboTax they will ask you if you are enrolled as an undergraduate student, and you will use the form to fill in the questions they ask. And that's it!

My university never explained to us what the 1098-T form was for, and my parent's didn't file for it. I don't understand why, maybe we make more money than I think, but I was able to claim this credit for my last year of undergraduate as I was a dependent at this point in time.

-Don't get stressed out
Play your favorite music, have your W-2s spread out, and just relax. Tax season does not have to stressful! Using websites like Turbotax make all the numbers and jargon easy for all of us. No matter if you owe money, end up at $0, or get a refund pat yourself on the back for taking care of business.